King Triton and his wife, Queen Athena, rule over the underwater kingdom of Atlantica, which is filled with music and laughter. They have seven young daughters, the youngest of whom is Ariel. The merfolk are shown relaxing in a lagoon above water, and Triton gives Athena a music box. Suddenly a pirate ship approaches. Everyone escapes except Athena, who is crushed by the ship when she tries to save the music box. Devastated by Athena's death, Triton throws the music box into the ocean and bans music from the kingdom.

Ten years later, Triton's daughters live under a strict routine maintained by their governess, Marina Del Rey. Marina hates her job and longs to be Triton's attaché, a job currently filled by Sebastian the crab. Ariel is frustrated by their current lifestyle, which brings her into conflict with Triton. One day, Ariel encounters Flounder, a fish, whom she later follows to an underground music club. She is overjoyed by the presence of music, and is shocked when she sees Sebastian performing there. When her presence is revealed, the entire band stops playing and hides, believing Ariel will tell her father about them. Ariel sings a song explaining her love of music and the remembrance of her mother and she joins the club with an oath.

Ariel returns to the palace, and her sisters confront her over her disappearance. She explains where she was, and the following night all seven sisters go to the club to have fun. Marina secretly finds them, and she later reports their activities to Triton. Sebastian, Flounder and the band are sent to jail, while Marina gets the job she wants. Ariel sneaks into the prison and frees the jailbirds. Sebastian leads them to a deserted place far from the palace where Ariel finds the music box. Ariel and Sebastian decide to return to Atlantica to show the music box to Triton, hoping that it will change his mind.

On the way back, they are confronted by Marina and her electric eels. Marina wants to stop them so she will retain her position of "power", and a struggle ensues. It ends when Marina barrels towards Sebastian and Ariel pushes him out of the way, getting hit in the process. Triton arrives in time to witness this, and he is remorseful for his actions. He sings the lyrics of "Athena's Song", and Ariel is revived. The film ends with music being restored to Atlantica. Everyone rejoices except Marina, who is sent to jail.